SHRIRAM CITY UNION FINANCE LTD.,CHENNAI vs. PCIT CORPOREATE CIRCLE-6(1), CHENNAI

4. The Principal CIT erred in not appreciating the fact that in the course of original assessment proceedings the Assessing Officer in the Questionnaire dated 22.09.2016 has called for details of the scheme of reverse merger with Shriram Retail Holdings Private Limited and the impact on financiais and the accounting treatment given with the justification of the same and the appellant had furnished the reply dated 18.10.2016 along with copy of Madras High Court order dated 24.06.2013 along with scheme of amalgamation and the Assessing Officer had considered it in the course of assessment proceedings.

5. The Pr.CIT failed to note the facts on record regarding two successive amalgamations (mergers) one of Shriram Enterprise Holdings Private Limited with Shriram Retail Holdings Private Limited, the second, Shriram Retail Holdings Private Limited, the amalgamated company merging with Shriram City Union Finance Limited, both by a single order of Madras High Court Order dated 24.06.2013 which has been well considered by the Assessing Officer and thus failed to appreciate that the reverse merger was nothing but the second stage amalgamation of Shriram Retail Holdings Private limited with Shriram City Union Finance Limited.

6. For these and other grounds that may be adduced before or at the time of hearing the Hon'ble ITAT may be pleased to cancel the order passed by the Principal CIT u/s.263.”

, submitted that revision has been invoked on two counts viz. (i) Incorrect exemption from capital gains tax on account of reverse merger; (ii) incorrect working of disallowance u/s 14A. The Ld. AR submitted that even in consequential order, Ld. AO has examined the issue of capital gain on reverse merger and has not made any adjustment / addition and thus, the original assessment order could not 3 - be said to be erroneous or prejudicial to the interest of the revenue for which revision would be required u/s 263. Regarding disallowance u/s 14A, Ld. AR submitted that the assessee has not earned any exempt income during the year and therefore, there would be no occasion to make any such disallowance. Moreover, the issue of disallowance u/s 14A was subject matter of addition during original assessment proceedings and the same has ultimately been settled in assessee’s favor by the Tribunal. The copy of the order has been placed on record. The Ld. CIT-DR, on the other hand, submitted that Ld. AO failed to make proper enquires on the issues as flagged in the impugned order and therefore, revision was quite justified.

3. Having heard rival submissions and after going through the orders of lower authorities, our adjudication would be as under.

4. The assessee being resident corporate assessee is stated to be engaged in finance activities. An assessment was framed for the year on 31.12.2016 wherein one of the additions made by Ld. AO was disallowance u/s 14A for Rs.77.36 Lacs. During assessment proceedings, it was the submission of the assessee that no exempt income was earned during the year and therefore, no disallowance u/s 14A could be made. However, rejecting the same, Ld. AO computed disallowance u/s 14A in terms of Rule 8D(2)(iii) for Rs.77.36 Lacs which was computed at 0.5% of average investments. Upon further appeal, Ld. CIT(A) concurred with assessee’s submissions and deleted the disallowance for the reason that no exempt income was earned by the assessee during the year. The revenue contested the stand of Ld. CIT(A) before this Tribunal vide dated 08.09.2021 wherein the bench considering the decision of Hon’ble 4 - Madras High Court in the case of Redington India Private Ltd. (392 ITR 633) as well as the decision in CIT V/s Chettinad Logistics Private Ltd. (95 Taxman 250) dismissed revenue’s ground of appeal

5. In the meantime, upon perusal of case records for the year, Ld. Pr. CIT sought revision of original assessment order u/s 263 vide order dated 30.03.2019 and issued a show-cause notice to the assessee during revisional proceedings. The reasons were two-fold i.e. (i) Incorrect exemption from capital gain tax on account of reverse merger; (ii) incorrect working of disallowance u/s 14A. In the notice, it was alleged that that disallowance u/r 8D(2)(i) & 8D(2)(ii) remained to be worked out. Second allegation was that the assessee received share value of Rs.102071.39 Lacs on account of reverse merger as against the fact that Net Asset Value of merged entity i.e., M/s Shriram Retail Holdings Private Limited (SRHPL) was taken at Rs.6549.99 Lacs in the Balance Sheet of the assessee Company. The difference i.e., Rs.95521.40 Lacs being capital gain escaped assessment in the hands of the assessee.

6. However, the assessee refuted the allegation of Ld. Pr. CIT by submitting that amalgamation was approved by Hon’ble High Court of Madras and no capital gain liability arose there-from. The assessee also assailed any further disallowance u/s 14A. However, not convinced, Ld. Pr. CIT observed that the submissions made by the assessee were not considered by Ld. AO during original assessment proceedings. The Ld. AO should have verified these aspects and pass the assessment order. The disallowance u/s 14A ought to have been computed u/r 8D(2)(i) & 8D(2)(ii) also. Finally, the order was termed as erroneous and prejudicial to the interest of the revenue and Ld. AO was directed to carry out 5 - thorough inquiry of both the aspects after affording opportunity of hearing to the assessee.

7. Pursuant to these directions, an assessment has been framed by Ld. AO on 31.12.2019, a copy of which is on record. In the order, Ld. AO has computed interest disallowance u/r 8D(2)(ii) for Rs.2888.77 Lacs and revised disallowance u/r 8D(2)(iii) to Rs.175.14 Lacs. However, no addition has been made on account of reverse merger which would support the argument of Ld. AR that original assessment order would could not be termed as erroneous and prejudicial to the interest of the revenue on this count. We concur with these arguments and would accordingly, hold that revision u/s 263 was not justified on this issue.

, on this issue, stood dismissed by Tribunal vide order dated 08.09.2021. Nevertheless, it could not be said that Ld. AO failed to make proper enquiries as to disallowance u/s 14A as alleged by Ld. Pr. CIT. As on the date of revisions, the issue of disallowance u/s 14A was already adjudicated by learned first appellate authority and the order of Ld. AO stood merged with the appellate order on that date. Therefore, revision of order, on this issue, would have no legs to stand and are liable to be quashed. We order so.

9. Finally, on the given facts and circumstances of the case, we have no hesitation in quashing the revisional order u/s 263 passed by Ld. Pr. CIT on 30.03.2019.